Virginia faces $1 billion shortfall – or maybe not

May 29, 2014|By Dave Ress, dress@dailypress.com

It's a figure the state's most powerful politicians have kept close to their chests for a dozen days, but Virginia could be on track to collect $1 billion less in revenue over the next two years than officials expected when they put together a budget they still can't agree on.

Or maybe not.

The $1 billion figure was batted around in Gov. Terry McAuliffe's closed-door meetings with senior members of the General Assembly's money committees last week as they discussed what is shaping up to be a $300 million dip in May tax collections compared to the year before. All of the politicians apparently agreed to keep mum until House Appropriations Committee Chairman S. Chris Jones, R-Suffolk, reported the problem in an open letter this week to local officials.

"Let me be the first to say that this news creates a great deal of urgency and makes it all the more imperative to complete work on the state budget as quickly as possible," Jones wrote. Without a budget, the state can't tap its emergency "rainy day fund," a pool that stood at more than $440 million as of the end of April.

The problem, Secretary of Finance Ric Brown said, is that nobody knows yet how far this year's revenue collections will fall short of the forecast $16.8 billion.

"I think the billion dollars was just math — $300 million times three for fiscal years '14, '15 and '16," he said.

But for the first 10 months of the fiscal year, through the end of April, revenue was up by more than $160 million from the year before. And June is one of the biggest months of the year for state tax collectors, with two big sales tax deposits and a due date for estimated income taxes rolling in, Brown said.

The state had more than $5 billion in the bank at the end of April, including more than $440 million in unencumbered reserves that could be drawn down to make up for May's revenue shortfall.

"We've got a fair amount of cash to deal with those kinds of things," Brown said.

Beyond that, McAuliffe said Thursday that the state's economy remains "fundamentally … very strong." When it comes to revenue problems, "everything's potential," he said.

The House of Delegates and state Senate have gridlocked over a budget for five months. House Republicans say they will not accept a budget that taps Affordable Care Act funds to expand health insurance for low income Virginians, while a state Senate majority of 20 Democrats and three Republicans say the state's next budget needs to draw an estimated $2 billion a year of those funds.

But neither body's money committee has acted on the other's budget, the critical step needed to begin negotiations. While both talk of urgency, Jones has said his committee won't act on the Senate version because tradition says the House version should be the vehicle for a budget. State Senate Majority Leader Richard Saslaw, D-Fairfax, says the Senate won't act on the House version until the House acts on the Senate version.

State officials won't know definitively how far short May revenues are until mid-June. June itself has been an even bigger month for revenue than May, so it could be well into the summer before anyone knows if the state missed its $16.8 billion revenue forecast for the fiscal year ending June 30. Last year, revenue came in 2 percent, or $300 million above forecast.

The budgets now stalled in the General Assembly are each based on a forecast that the state's general fund revenue will be $17.7 billion next year and $18.4 billion the year after that. The May figures won't change that, but could lead legislators to boost the funds they are setting aside as reserves. The House, for instance, pushed by Jones, has already boosted reserves by about $65 million from what outgoing Gov. Bob McDonnell had proposed to $130 million.

Senate budget staffers are looking for cuts now so they'll be ready when and if the full shortfall materializes, Senate Finance Co-Chairman Walter A. Stosch said. The idea is to hold that spending back until the revenue picture is more clear.

"Think of it as being parked," said Stosch, R-Glen Allen.

Asked where the cuts would come, Stosch replied, "Wherever we can get it."

If revenue from income and sales taxes for the whole year comes in 1 percent below budget – about $155 million – that would trigger a two-step process by boards of experts to revise the revenue forecast for the next two years. They'd have to come up with a new forecast by Sept. 1, which would be used to revise the budget when the legislature meets at the start of 2015.

The billion-dollar figure, if it materializes, translates to about 2.5 cents out of every dollar state officials currently expect to collect over the next two years.

Jones said the revenue squeeze and the resulting need for a budget now shows why the state Senate should keep Medicaid expansion out of the budget, to ensure quick passage.

McAuliffe spokesman Brian Coy said the state's revenue challenge meant a speedy budget and a chance to use Affordable Care Act funds to replace up to $225 million a year in programs now funded entirely by Virginia taxpayers were both vital.